LegCo Paper No. CB(1) 1918/96-97
(These minutes have been seen
by the Administration)
Ref : CB1/PL/TP/1

LegCo Panel on Transport

Minutes of special meeting held on Wednesday, 14 May 1997, at 10:30 am in Conference Room A of the Legislative Council Building

Members present :

    Hon Mrs Miriam LAU Kin-yee, OBE, JP (Chairman)
    Hon Zachary WONG Wai-yin (Deputy Chairman)
    Hon Edward S T HO, OBE, JP
    Hon LEE Wing-tat
    Hon CHAN Kam-lam
    Hon CHAN Wing-chan
    Hon CHEUNG Hon-chung
    Hon LAU Chin-shek
    Hon LEE kai-ming
    Hon NGAN Kam-chuen
    Hon TSANG Kin-shing

Members absent :

    Hon Mrs Selina CHOW, OBE, JP
    Hon Albert CHAN Wai-yip
    Dr Hon Samuel WONG Ping-wai, OBE, FEng, JP
    Dr Hon Philip WONG Yu-hong
    Hon CHOY Kan-pui, JP
    Hon Albert HO Chun-yan
    Dr Hon LAW Cheung-kwok
    Hon SIN Chung-kai
    Hon Lawrence YUM Sin-ling

    Public officers attending :

    Item IV

    Transport Branch

    Mr Gordon SIU, JP,
    Secretary for Transport

    Miss Nancy LAW, JP,
    Deputy Secretary for Transport (Transport Management)

    Mr Isaac CHOW,
    Deputy Secretary for Transport (Transport Services)

    Mr Allan CHOW,
    Principal Assistant Secretary for Transport (Transport Management)

    Transport Department

    Mr Anthony LOO,
    Chief Engineer/Territory Transport

    Legal Department

    Mr James O'Neil,
    Deputy Crown Solicitor

    Miss Adela AU,
    Assistant Principal Crown Counsel

    Item V

    Transport Branch

    Mr Gordon SIU, JP,
    Secretary for Transport

    Mr Isaac CHOW,
    Deputy Secretary for Transport (Transport Services)

    Mr LAU Kwok-choi,
    Principal Assistant Secretary for Transport (Transport Services)

    Financial Services Branch

    Mr Andrew AU, Ag.
    Principal Economist

    Transport Department

    Mrs Dorothy CHAN, JP,
    Ag. Commissioner for Transport

    Mrs Judy LI,
    Assistant Commissioner for Transport

    Miss Regina YEUNG,
    Chief Transport Officer

Attendance by invitation :

    Item IV

    New Hong Kong Tunnel Company Limited

    Mr Alexander S CHAN,
    Executive Director & General Manager

    Mr Robin Peard,
    Legal Adviser of the New Hong Kong Tunnel Co. Ltd.

Clerk in attendance :

    Ms Estella CHAN,
    Chief Assistant Secretary (1)4

Staff in attendance :

    Miss Connie FUNG,
    Assistant Legal Adviser 3

    Mr Matthew LOO,
    Senior Assistant Secretary (1)4 (Atg)

I Confirmation of minutes and matters arising

(LegCo Paper No. CB(1) 1537/96-97)

The minutes of the meeting held on 19 March 1997 were confirmed.

II Information papers issued since last meeting

2. Members noted that no information paper had been issued since last meeting.

III Items for discussion for the next meeting scheduled for 13 June 1997

(List of outstanding items for discussion as at 12 May 1997)

3. The Panel agreed that the following items would be discussed at the next two meetings on 5 and 13 June 1997:

5 June 1997

  1. Parking Demand Study;

  2. Freight Transport Study; and

  3. Progress of Airport Railway project.

13 June 1997

  1. China Motor Bus Co. Ltd.'s franchise renewal;

  2. Kowloon Motor Bus Co. Ltd.'s franchise renewal; and

  3. Long term development of ferry services.

IV Eastern Harbour Crossing - toll arbitration

(Paper No. CB(1) 1536/96-97(01) provided by the Administration)

4. At the Chairman's invitation, the Secretary for Transport (S for T) advised members of the Administration's stance on Eastern Harbour Crossing's toll arbitration award. He referred to the press release issued by the New Hong Kong Tunnel Company Limited (NHKTCL) on 1 May 1997 and pointed out that the Award neither set out any principle for toll adjustment nor preset a $5 toll increase at 5-year intervals thereafter for NHKTCL; the Arbitrator had affirmed that he had no jurisdiction to make such awards. The Deputy Crown Solicitor (DCS) also advised the Arbitration Ordinance (Cap. 341) had stipulated that an award on an arbitration agreement could only be remitted on grounds of errors of fact or law. The Administration had not found any grounds for appeal either under the Ordinance or under common law. As regards the impact of the awarded toll increase, S for T expected little effect on traffic management. Nevertheless, he anticipated a significant change in cross-harbour traffic following opening of the new airport in 1998. New developments in Tseung Kwan O would also increase traffic via the Eastern Harbour Crossing (EHC). The Administration would take into consideration these factors and carefully study the impact of the award on the traffic flow of other cross-harbour tunnels.

5. Mr Alexander S CHAN of NHKTCL tabled a press release to clarify certain aspects of the toll increase arbitration award summarized in the previous press release of 1 May 1997. In brief, he advised that the arbitrator had only awarded the toll increase which would be effected in January 1998. The increase was aimed at giving NHKTCL an Internal Rate of Return of not below the lower range of reasonable remuneration of between 15 and 17%. Different options of toll increase were considered and a progressive and a $5 increase on 1st January 1998 was finally awarded, with the assumption that future increases in tolls sufficient to give a 15 - 17% IRR would be awarded at 5-year intervals in the future. The arrangement would avoid earlier tunnel users having to subsidize later users and was in accord with the intentions of the Administration and NHKTCL at the time the franchise was granted to achieve a slowly progressive and stable toll regime.

(Post-meeting note: Press releases dated 1 and 14 May 1997 provided by NHKTCL had been circulated to members vide LegCo Paper No. CB(1) 1602/96-97 dated 16 May 1997.)

6. Members noted that any appeal against the award had to be filed within 21 days after the Arbitrator made his decision on 10 April 1997, but the Administration only made its comments on the outcome on 2 May 1997, in response to NHKTCL's press release. S for T explained that once the Administration found that there was no error in law in the award and there was little chance of success in appealing against the decision under the Arbitration Ordinance (Cap. 341), a second opinion was sought on other appeal channels. It might not be appropriate to disclose too much detail while there was still the possibility of an appeal. Members were not convinced by this explanation and considered it appropriate for the Panel to be informed while the Administration was seeking legal advice. They were disappointed by the delay in announcement of the outcome and considered that the public should not be deprived of the right to know. Admin

7. On the impact of the award on the management of cross-harbour traffic, S for T advised that EHC had reached its capacity during peak hours and he expected the situation to be maintained despite the toll increase. The Western Harbour Crossing (WHC) had only influenced slightly the utilization rates of the Cross Harbour Tunnel (CHT) and EHC, and the total number of vehicles using these three tunnels had risen upon opening of WHC. As regards the impact of the new airport on cross-harbour traffic, the Administration had already made forecasts on these changes but the real effect would depend on such factors as economic activities and other developments in Hong Kong. The "in-town check-in" service might also reduce road traffic to the new airport. It might take one to two years for these changes to stabilize and the Administration would closely monitor the situation. On the other hand, he noted a member's suggestion to offer concessionary toll to motorists to encourage use of EHC during off-peak hours. He would follow up this suggestion with NHKTCL.

8. Members commented that the award was basically a commercial decision: the Arbitrator had not taken into account such factors as public affordibility and impact on cross-harbour traffic. The awarded toll increase was only to secure a reasonable remuneration for NHKTCL. They also criticized NHKTCL for seeking arbitration after its application for toll increase was rejected by the Administration in 1995. In response, S for T advised that the Administration did not support any toll increase for EHC at that stage because there was no justification for any increase. In seeking arbitration, NHKTCL had acted in accordance with provisions in the Eastern Harbour Crossing Ordinance (Cap. 215). He opined that the award would not undermine the Administration's authority to control other similar utilities. DCS also affirmed that the award would not have binding effect on other toll applications. Admin

9. As to whether the award was given on the basis of the toll increase application in 1995, S for T clarified that the Arbitrator had considered updated information including traffic flow in granting the award. He pointed out that the high inflation rate was the crux of the problem faced by NHKTCL. In fact, the operation of EHC was satisfactory in 1996 when there was an increase in revenue because NHKTCL had succeeded in lowering operating expenses. Nevertheless, the annual inflation rate estimated by NHKTCL was only 8% which was much lower than the actual rates experienced in past few years. A member queried if the opening of WHC could be a justified reason for NHKTCL to seek toll increase as the company should have taken into consideration this factor when they tendered for EHC. In response, Mr Robin Peard advised that when NHKTCL undertook the construction and operation of EHC in 1980s, it was only advised that WHC would be constructed after 2000 and the schedule was not yet known. S for T undertook to clarify this point and provide relevant information in due course. Admin

10. A member referred to paragraph 19.1 of the arbitration report and enquired if the Administration could further negotiate with NHKTCL at that stage. In response, DCS advised that the paragraph only referred to the agreement in respect of costs. S for T added that it was not possible to make any new agreement which was inconsistent with the award for the current case. Notwithstanding, he would consider the member's suggestion for reviewing toll increase application arrangement with NHKTCL in future. Admin

11. On the enquiry about the appropriate level of IRR for such utilities as EHC, S for T advised that the 15 to 17% IRR recommended by the Arbitrator would only be used as a reference by the Administration. He reminded members of previous discussions on this subject and advised that different IRR ranging from 14 to 20% had been proposed to attract private investment in such large infrastructural projects. For the current operators, the Administration would decide on appropriate IRRs according to their performance and operating environment. As regards the estimated IRR of 6.28% for EHC mentioned in the arbitration report, Mr CHAN pointed out that this estimate was based on consultants' advice from the Administration on the $750 million equity injected by shareholders over the whole franchise period till 2016. S for T undertook to provide relevant estimates for members' reference. Admin

12. Members noted that the Administration and NHKTCL had adopted different bases for determining toll levels; a base case approach was used by the former while the IRR approach was used by the latter to justify the toll level. They were concerned about these discrepancies as the Arbitrator had accepted NHKTCL's approach in the award. In response, S for T affirmed that the Administration would assess each toll increase application on the basis of its own merits. Nevertheless, he would take into consideration and review the existing standards adopted by the Administration, and advise members the outcome in due course. Admin

13. A member considered the toll differentiation of the three cross-harbour tunnels highly undesirable from the viewpoint of transport management. He suggested that the 12.5% royalty payable by ECH be waived so that the toll could be lowered without affecting the income of NHKTCL. Another member did not agree with this proposal in view of its far-reaching effect on other tunnel operators as they might also request waiver of their royalties to cover operating deficits. In response, Mr CHAN clarified that NHKTCL was not required to pay any royalty to the Administration. Instead, the Company had allocated 7.5% of shareholding of the company to the Administration. S for T advised that the member's proposal would indirectly affect public revenues but he nevertheless undertook to study the proposal further.

14. Members were not convinced that the award would have no adverse effect on the Administration's control over toll increase applications of other tunnels. They enquired if there were remedial measures to prevent tunnel operators from seeking arbitration in future. In response, S for T advised that the Administration had to work within the existing legal framework in monitoring operation of tunnels. Nevertheless, he agreed that the existing arrangement of relying on private investors to operate major infrastructures such as tunnels had to be reviewed. He advised that the Administration had actively looked into the role of Government-owned tunnels in transport management; the interaction between Tate's Cairn Tunnel and the Government-owned Lion Rock Tunnel was one example. He noted a member's suggestion for the construction of a Government-owned cross-harbour tunnel connecting Hung Hom and Wanchai as a solution to the problem and assured that the proposal would be considered in the context of the Third Comprehensive Transport Study.

V Taxi licence premium

(Paper No. CB(1) 1556/96-97(01) provided by the Administration)

15. At the Chairman's invitation, the Deputy Secretary for Transport (Transport Services) (DS for T) advised that taxi licences had been put up for tender since 1964; before that they were issued by the Police. In view of a sharp increase in taxi licence premiums in the past decade and a large number of complaints about taxi services, a working group was formed under the Transport Advisory Committee (TAC) to conduct a taxi policy review in 1991. Several measures to deter speculation on taxi licences premium including issuing licences on an irregular basis, restricting each person from bidding for more than one licence in each tender, and forbidding the transfer of new licences within 12 months after the date of issue were recommended in its report in early 1994. These suggestions were endorsed by the Executive Council and the Legislative Council, and new legislation was introduced in July 1994. In September 1994, 300 urban and 100 New Territories taxi licences were tendered out under the revised policy. Ten Lantau taxi licences had also been issued a few months ago. There was a decrease in the number of complaints about taxi services in the first few months of 1997 after an increase in 1995 and 1996. In addition, DS for T advised that the Administration did not take into account taxi licence premiums when considering taxi fare increase applications. Nevertheless, a working group had been formed under TAC again to look into the recent drastic increase in taxi licence premiums. He also provided a table on average taxi licence premiums, average taxi rentals and average taxi fares per trip since 1986 for members' reference.

(Post-meeting note: The table had been circulated to members vide LegCo Paper No. CB(1) 1602/96-97 dated 16 May 1997.)

16. A member pointed out that taxi drivers always aimed at owning their own taxis. With sky-rocketed taxi licence premiums, this was hardly achievable and might indirectly affect service quality of the trade. He enquired if the Administration had considered such means as lowering the ceiling of bank mortgages for taxi licences to deter speculation. In response, the Principal Assistant Secretary for Transport (Transport Services) advised that the Hong Kong Monetary Authority (HKMA) had been monitoring arrangements for taxi licence mortgages and the TAC working group would discuss this subject with HKMA. As regards the speculative transfer of taxi licences by changing ownership of companies, DS for T advised that the Administration was aware of the situation and the working group would also look into this problem. In addition, he advised that Legislative Council Members had recommended in 1994 a progressive approach in tightening up control over speculative activities in this respect.

17. In response to a member's enquiry on the criteria for issuing taxi licences, the Acting Commissioner for Transport advised that public demand, operating conditions of the trade and traffic condition would be taken into consideration. On the basis of findings of surveys on the trade which indicated that average waiting time for taxis was decreasing and the number of empty taxis had increased, the Administration had decided to withhold issuance of taxi licences in the past three years. Notwithstanding, the Administration would closely monitor and review the situation to keep pace with the transport need in Hong Kong.

18. A member referred to the table provided by the Administration and pointed out that the increase in taxi licence premiums in the past decade had not directly affected taxi rentals and fares per trip. Taxi licences had already been regarded as a tool for speculation. Nevertheless, he observed that there was a drastic increase in premiums from April 1996 to April 1997, and was worried that it might have adverse impact on the trade in future. On the other hand, he considered it inappropriate to deter speculation by increasing the number of taxi licences. In response, DS for T advised that members' views would be duly considered by the TAC working group. He also advised that the working group had just started work a few weeks ago and was collecting relevant information and views from different parties. There was no definite schedule for completion of the review and members would be informed of progress in due course.

VI Any other business

19. There being no other business, the meeting ended at 12:25 p.m.

Legislative Council Secretariat

24 June 1997

Last Updated on 22 August 1998